Lessons Learned on the Road to an 850 FICO score

One of the most common goals we hear from our clients is, “I want to improve my credit score.” FICO credit scores range from 300-850 and the average score for consumers who seek advice from our counselors is 587. We’ve talked before about how to increase your credit score and explained that we provide free credit scores, but in this post we want to do something a bit different. One of our educators, (he’s actually our Media Relations Manager and helps spread financial tips and tricks to news outlets across the country), Thomas Nitzsche, is revealing his secrets to achieving a high credit score. In fact, he has been so successful that his credit score is just 9 points below a perfect 850! But it wasn’t always easy. Here, he talks about the lessons he learned along the way:

My experience with credit began with a rocky start. My parents never had credit cards and discouraged me from ever getting one, so I never learned how they really worked. I also grew up in the days of easy credit when the card issuers advertised heavily on college campuses and gave away freebies in exchange for a credit application. While I was 19 years old and only working a part-time job, my first credit card was platinum with a $10,000 limit! Needless to say, this high limit combined with poor choices as a young person resulted in some financial distress. I never defaulted or declared bankruptcy, but it took me years to overcome high levels of debt and reach a point where I was using credit optimally.

Lesson One: Wants vs. Needs

In my 20s I sometimes used my credit cards for things I wanted and couldn’t immediately pay for. My thought was that I would have the money by my next payday or the payday after that. But that way of thinking was rarely in line with reality. Over time, the balances increased to the point that I was just barely paying more than the minimum payment. Because of this, most of the payment was going toward interest and I found myself unable to pay down the debt. I was also beginning to damage my credit score because I was above the best debt-to-limit ratio (also known as credit utilization).

Lesson Two: Balance Transfers

Because I had decent credit and was in good standing with my creditors, I received many offers for balance transfers. These consolidation offers seemed appealing, given their “teaser rates” and convenient checks. I began a habit of moving the money from one creditor to the next, each time paying a balance transfer fee and never really paying down the debt. Because I was doing this regularly, my credit score took small hits for frequently opening new accounts and never building up a very long payment history to any one creditor.

Lesson Three: Lack of Savings

When I was laid off from a job in 2007, I found myself sorely unprepared for what was to come. The recession had arrived and jobs were hard to find. When I finally found a job, I was making much less than in my previous position. Because I didn’t have any emergency savings, I was forced to rely on my 401k retirement plan to remain current on my obligations. I ultimately depleted my 401k to pay off my credit card debt, but I still had student loans, a car payment and a mortgage. I was finally able to balance my budget and begin contributing to my retirement plan while aggressively paying down my student loan debt. I was also eligible for a home loan modification, which lessened the burden of my mortgage.

Lesson Four: Credit Card Rewards

My new job was that of a credit counselor at Clearpoint. In that role, I met with many clients who were reluctant to part with their credit cards due to the loyalty programs. I began to realize that many consumers fall into a pattern of spending and debt to receive points, but end up losing much more in interest. I also found that some consumers lose money due to point expiration and devaluation. It was at this time that I vowed to only use credit when it could be paid-in-full each month. I researched rewards programs that fit my spending patterns and began using them carefully. Since that time I have earned thousands of dollars in rewards points without paying any interest to my creditors. This was really the turning point for me.

Lesson Five: Debt Free

After paying off my credit cards, I felt such a burden off of me that I wanted to experience even greater financial freedom. I sold my car and bought a cheaper one that didn’t require a loan. I then turned to my student loans and began paying them down aggressively. Paying them off finally enabled me to pursue other goals such as increasing my savings, traveling and contributing to my niece’s college fund. In addition, my credit score jumped about 20 points!

How I increased my credit score

So far, I’ve been talking more about my background and some of the financial challenges I faced. Looking back, it’s amazing that I was able to go through those experiences and come out of them not just in a more stable financial situation, but with a near perfect credit score! My point is that no matter where you stand now, there is certainly room for improvement, and you can make a comeback bigger than you think.

Once I made a decision to turn things around, the key factors to my success were: never being late on payments, keeping the balances well below their limits, having a long history of established credit and having a diversified portfolio of revolving and installment lines of credit.

Thomas Nitzsche is Clearpoint’s Media Relations Manager, former credit counselor and resident credit expert. He enjoys bargain travel, planning his tiny house project and working on his family’s 1850’s farmhouse in southern Illinois. You can follow him on Twitter.

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Comments

2 responses to “Lessons Learned on the Road to an 850 FICO score”

Lka

You talk about your struggles; but in the midst of it all, you suddenly mention a mortgage. Without breaking down how you were able to purchase a house in the middle of financial crisis, makes the relating to others a bit unbelievable.

Your principles are good, but believing you actually can relate to my financial struggles is not quite believable. I need someone that can share principles and relate to my struggle of purchasing a home. I don’t feel you are reliable in that aspect. Sorry.

Thomas Nitzsche

Thanks for the feedback and I should clarify that my first home was purchased in 2005, back when lenders were much looser with their approvals and 100% financing. I sold and bought again in 2007 before the housing crash and my employer’s mass layoff. As I mentioned earlier in the post, I started with credit at a young age and never defaulted, so even though I was carrying a lot of debt the lenders at that time still approved me because my credit score was decent. In hindsight, I should have saved myself a lot of stress and worked on paying off at least the credit card debt before buying the home. However, at the time I thought it made sense because the payment wasn’t any higher than my rent and it allowed the immediate tax benefit, asset-building and gratification of home-ownership. Besides my layoff and subsequent under-employment, my financial struggle was in the weight of juggling all that debt throughout my twenties. After the layoff I had several roommates to supplement my income and ended up qualifying for a mortgage modification in order to avoid default, so I certainly understand financial difficulties and they were very helpful to me when counseling others from 2008-2011 as a credit and housing counselor here at Clearpoint. My blog post was intended to highlight that financial fatigue and what I see now that I could have done better in order to educate and hopefully inspire others who are struggling. I think it also brings out another good point, that just because one has good credit they are not necessarily financially healthy. Feel free to reach out to me any time with any related questions. My contact information is on the “media center” page.